A landlord is typically entitled to maintain a tenant's security deposit to offset a breach of a lease, provided that, and only if, the landlord is in compliance with the law regarding the maintenance of such security deposits.
The General Obligations Law 7-103 ("GOL 7-103) is the statute that governs security deposits in New York. First and foremost, a security deposit is always the property of the tenant. The landlord is charged with holding the security deposit as a trustee. The primary purpose behind the enactment of GOL 7-103 was to protect a tenant from a landlord's misappropriation of a security deposit, until the tenant's ultimate recovery of same at the end of a lease. However, GOL 7-103 serves to protect landlords as well.
Courts faced with interpreting GOL 7-103, have repeatedly recognized the statute's additional protection for landlords, as insurance for a tenant's performance under a lease. The Courts lend their support to the theory that the statute's enactment, while serving to protect tenants, does not abrogate a landlord's right to apply said funds whenever necessary, to cure a tenant's breach of its contractual obligations.
While the Courts have shown support for landlords as a "protected creditors" in the event of a tenant breach, it is also clear that landlord violations of GOL 7-103 will negate such right. Most significantly, in any case where it is found that a landlord commingles a security deposit with its own funds or any other funds or accounts, the landlord will be deemed unsecured. In such case, the tenant is entitled to the immediate return of the security deposit, regardless of whether the tenant breached the lease himself.
Landlords are urged to review GOL 7-103 in its entirety, if there are questions concerning its application and requirements.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
